Danaos Corp 1Q Report

Thursday, April 30, 2009

Danaos Corporation (NYSE: DAC), an international owner of containerships, reported unaudited results for the period ended March 31, 2009.

Highlights for the First Quarter Ended March 31, 2009:
• Net earnings on a comparable basis of $20.0 million or $0.37 per share for the quarter ended March 31, 2009 compared to $25.9 million or $0.48 per share for the respective period of 2008, adjusted for a gain on sale of vessels of $5.6 million recorded during the first quarter of 2008.
• Operating revenues of $75.3 million for the quarter ended March 31, 2009 compared to $69.9 million for the respective period of 2008.
• EBITDA on a comparable basis of $47.9 million for the quarter ended March 31, 2009 compared to $45.6 million for the respective period of 2008, adjusted for a gain on sale of vessels of $5.6 million recorded during the first quarter of 2008.

Danaos' CEO Dr. John Coustas commented:
“In the first quarter of 2009, we achieved solid earnings despite the overall market disruption. We report net earnings of $20 million or $0.37 per share, which I believe it is a performance highly satisfactory considering the overall state of the world economy and the shipping markets in particular. We have managed to increase our revenues to $75.3 million, up from $69.9 million in the first quarter of 2008 as a direct result of the continuing successful expansion of our fleet and have kept the utilization rate of our fleet at the usual high levels of the past years. I am also very pleased to report that we have been able to keep the daily operating cost of our fleet under time charters unchanged as compared to that a year ago.

In this last quarter alone, we took delivery of two vessels which have already commenced their twelve-year charter with one of the largest liners in the world. The Zim Monaco and the Zim Dalian are two modern 4,253 TEU ships which were constructed and delivered to Danaos in time and according to schedule by Samsung Heavy Industries. We consequently have 29 vessels on order, all of which are chartered at reasonable charter rates with some of the largest liner companies in the world.

We wish to reiterate that our vessels both operating and those under construction are under long time charters with some of the largest counterparties in the shipping industry. Although the current economic conditions are presenting everybody in our trade with new challenges, our chartering arrangements do not allow for unilateral modification of the prevailing terms.

World trade has shown traces of stabilization particularly as we got closer to the end of March, while this has been more visible through April. A number of vessels in the world containership fleet which were idle throughout the previous period were called once again back in duty pointing to such stabilization and even a route specific recovery, which however remains to be tested against time.

We are also in the position to report more solid information regarding rearrangements of ship deliveries. We have come to an agreement with China Shipbuilding Trading Company to delay the delivery date of the five 8,530 TEU containerships under construction by two hundred days each on average. In addition, we have come to an agreement with Hanjin Heavy Industries & Construction Company to delay the delivery date of the five 6,500 TEU and the five 3,400 TEU containerships under construction by approximately one quarter each. As of today, we are expecting to take delivery of six vessels during the current year, twelve in 2010 (three of which may be delivered in the following year as their delivery is scheduled for December 2010) and eleven in 2011. Assuming that the three new-buildings of December 2010 will finally be delivered in 2011, the remaining capital expenditure installments are approximately $465 million for the remaining of 2009, $875 million for 2010 and $785 million for 2011.

During the first months of 2009, we signed a new $299 million loan facility with Deutsche Schiffsbank. This additional facility, together with the available undrawn capacity under our existing credit facilities and the cash expected to be generated by our operations, is expected to cover our 2009, and a portion of our 2010, funding requirements. We are currently in discussions to arrange additional financing for the unfunded part of our new building fleet and we believe that despite the challenging current credit conditions we should be able to obtain these additional funds in time to meet our commitments, also supported by the fact that all of our new buildings are already chartered for long-term periods. At the same time we are engaged in further negotiations to delay construction payments and subsequent deliveries of certain of our vessels for which we have not so far arranged for specific debt financing, which we will communicate to the market as soon as we have more concrete results.

On our existing debt we have either received waivers or are in discussions with the lead arrangers of such debt to receive waivers covering breaches of financial covenants, principally our loan to value requirements, our required ratio of total liabilities (after deducting cash and cash equivalents) to market value adjusted total assets and our book and market value adjusted net worth requirements. However, certain of these agreements have not yet been reduced to writing and remain subject to the requisite approval of the applicable lending syndicates.

Even more so in these challenging times, our strategy at Danaos is firmly focused in maximizing total returns of shareholders. “

During the quarter ended March 31, 2009, Danaos had an average of 39 containerships as opposed to 36.3 containerships for the same period of 2008. During the first quarter of 2009, we took delivery of two new vessels. Our fleet utilization was 96.3% in the first quarter of 2009.

Our net income on a comparable basis was $20 million or $0.37 per share for the three months ended March 31, 2009 compared to $25.9 million or $0.48 per share for the three months ended March 31, 2008, adjusted for a gain on sale of vessels of $5.6 million recorded during the first quarter of 2008. This represents a decrease of 22.8% or $5.9 million, which is mainly attributed to increased interest expense of $5.4 million resulted from the increase of our average indebtedness during the quarter ended March 31, 2009 compared to the same period of 2008. Furthermore, in the first quarter of 2009 deferred fees of $0.4 million were written-off. Our net income on a reported basis was $20.0 million or $0.37 per share for the three months ended March 31, 2009 compared to $31.5 million or $0.58 per share for the three months ended March 31, 2008.

Operating revenue increased 7.7%, or $5.4 million, to $75.3 million in the quarter ended March 31, 2009, from $69.9 million in the quarter ended March 31, 2008. The increase was primarily attributable to the addition of five vessels to our fleet, as follows:

These additions to our fleet contributed revenues of $8.2 million during the three months ended March 31, 2009. In addition, three 2,200 TEU containerships, the Hyundai Progress, the Hyundai Highway and the Hyundai Bridge, which were added to our fleet on February 11, 2008, March 18, 2008 and March 20, 2008, respectively, contributed incremental revenues of $3.1 million during the three months ended March 31, 2009 compared to the three months ended March 31, 2008. In addition, the company sold three vessels as follows:

These vessel sales reduced operating revenue by $2.9 million for the three months ended March 31, 2009 compared to the contribution by such vessels to operating revenue in the three months ended March 31, 2008. In addition, one 5,506 TEU containership, the APL Belgium and one 3,101 TEU containership, the Winderberg, which were sold on January 15, 2008 and January 25, 2008, respectively, contributed revenues of $0.3 million for the three months ended March 31, 2008 compared to nil contribution by such vessels in the three months ended March 31, 2009.

We also had a further decrease in revenues of $2.7 million, mainly attributed to revenue lost due to off-hire days of vessels under drydocking during the three months ended March 31, 2009 compared to the three months ended March 31, 2008.

Vessel operating expenses increased 11.6%, or $2.3 million, to $22.1 million in the quarter ended March 31, 2009, from $19.8 million in the quarter ended March 31, 2008. The increase was due to the increase in the average number of vessels in our fleet under time charter during the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008.

Furthermore, we have successfully implemented efficient management controls on our operating expenses, resulting in a flat daily operating cost of less than $6,300 for the vessels of our fleet under time charter during the three months ended March 31, 2009 compared to the three months ended March 31, 2008.

Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs. Depreciation expense increased 20.3%, or $2.4 million, to $14.2 million in the quarter ended March 31, 2009, from $11.8 million in the quarter ended March 31, 2008. The increase in depreciation expense was due to the increased average number of vessels in our fleet during the quarter ended March 31, 2009 compared to the same period of 2008.

Amortization of deferred dry-docking and special survey costs increased 18.8%, or $0.3 million, to $1.9 million in the quarter ended March 31, 2009, from $1.6 million in the quarter ended March 31, 2008. The increase reflects higher drydocking costs incurred, which were subject to amortization during the three months ended March 31, 2009 as compared to the same period of 2008.

General and administrative expenses increased 10.7%, or $0.3 million, to $3.1 million in the quarter ended March 31, 2009, from $2.8 million in the same quarter of 2008. The increase was primarily a result of increased fees of $0.4 million paid to our Manager in the first quarter of 2009 compared to the same period of 2008 due to the increase in the average number of our vessels in our fleet and an increase of the fees paid to our manager.

On February 12, 2009, the Company signed an addendum to the management contract amending the management fees to a fee of $575 per day (from $500 per day), a fee of $290 per vessel per day (from $250 per vessel per day) for vessels on bareboat charter, a fee of $575 per vessel per day (from $500 per vessel per day) for vessels on time charter and a flat fee of $725,000 per newbuilding vessel (from $400,000 per newbuilding vessel) for the supervision of newbuilding contracts. All commissions to Manager remained unchanged.

Voyage expenses increased 25.0% or $0.4 million, to $2 million in the quarter ended March 31, 2009, from $1.6 million for the quarter ended March 31, 2008. The increase was the result of increased bunker costs of $0.4 million, attributed to five of our vessels for which drydocking was performed during the first quarter of 2009. Our vessels are not otherwise subject to fuel costs, which are paid by our charterers.

Interest expense increased 74%, or $5.4 million, to $12.7 million in the quarter ended March 31, 2009, from $7.3 million in the quarter ended March 31, 2008. The change in interest expense was due to the increase in our average debt by $748.9 million to $2,101.7 million in the quarter ended March 31, 2009, from $1,352.8 million in the quarter ended March 31, 2008. The financing of our extensive new-building program resulted in interest capitalization, rather than such interest being recognized as an expense, of $7.2 million for the quarter ended March 31, 2009 compared to $10.2 million of capitalized interest for the quarter ended March 31, 2008.

Interest income decreased by $0.1 million, to $1.0 million in the quarter ended March 31, 2009, from $1.1 million in the quarter ended March 31, 2008. The decrease in interest income is attributed to lower interest rates during the three months ended March 31, 2009 as opposed to the three months ended March 31, 2008.

Restricted cash is attributed to cash raised through our revolving credit facilities designated to finance certain of our new buildings and is gradually utilized to fund progress payments of these new buildings up to their deliveries through the third quarter of 2011.

Other income/(expenses), net, decreased by $0.1 million, to $(0.4) million in the quarter ended March 31, 2009, from $(0.3) million in the same quarter of 2008.

EBITDA on a comparable basis increased by $2.3 million, or 5.0%, to $47.9 million in the quarter ended March 31, 2009, from $45.6 million in the quarter ended March 31, 2008, adjusted for a gain on sale of vessels of $5.6 million recorded during the first quarter of 2008. EBITDA on a reported basis decreased by $3.3 million, or 6.4%, to $47.9 million in the quarter ended March 31, 2009, from $51.2 million in the quarter ended March 31, 2008. A table reconciling EBITDA to net income can be found at the end of this earnings release.

Based on the unaudited financial statements for the year ended December 31, 2008 and valuations of our fleet as of December 2008 that we received from two independent ship brokers, we determined that we were in breach of covenants, principally our loan to value requirements, our required ratio of total liabilities (after deducting cash and cash equivalents) to market value adjusted total assets and our book and market value adjusted net worth requirements under certain of our credit facilities. Substantially all of our long-term debt continues to be classified as non-current as of December 31, 2008 and March 31, 2009, because our debt covenant violations as of December 31, 2008 have been (or are expected to be) waived by our lenders and the relevant covenants have been (or are expected to be) amended to levels that we expect to be able to comply within future periods. To the extent that we are unable to finalize formalization of these waivers and amendments prior to the issuance of our audited 2008 financial statements, any long-term debt for which we have been unable to secure waivers and, where applicable, amended covenants, will be required to be classified as current, reflecting our lenders' ability to call that debt at any time at their option.

We have come to an agreement with China Shipbuilding Trading Company to delay the delivery date of the five 8,530 TEU containerships under construction by two hundred days each on average. In addition, we have come to an agreement with Hanjin Heavy Industries & Construction Company to delay the delivery date of the five 6,500 TEU and the five 3,400 TEU containerships under construction by approximately one quarter each. As of today we are expecting to take delivery of six vessels during the current year, twelve in 2010 (three of which may be delivered in the following year as their delivery is scheduled for December 2010) and eleven in 2011. Assuming that the three newbuildings of December 2010 will finally be delivered in 2011, the remaining capital expenditure installments are approximately $465 million for the remaining of 2009, $875 million for 2010 and $785 million for 2011. Each of our newbuilding vessels, including those with delayed deliveries, have long-term time charters arranged at reasonable rates with leading liner companies.

In case of any problems with the above numbers, please dial 1 866 223 0615 (US Toll Free Dial In). 0800 694 1503 (UK Toll Free Dial In) or +44 (0)1452 586 513 (Standard International Dial In). Please quote "Danaos" to the operator. A telephonic replay of the conference call will be available until May 6, 2009 by dialing 1 866 247 4222 (US Toll Free Dial In), 0800 953 1533 (UK Toll Free Dial In) or +44 (0)1452 550 000 (Standard International Dial In). Access Code: 1186615#. Audio webcast: There will also be a live and then archived webcast of the conference call through the Danaos website (www.danaos.com). Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.